Phillips 66 Partners LP (PSXP) said it will expand the capacity of its Gray Oak crude oil pipeline system, which is currently under construction, to 900,000 b/d based on strong demand in the pipeline link connecting the Permian Basin and Eagle Ford Shale with the U.S. Gulf Coast.

In a strategic update released in tandem with its 3Q2018 earnings Friday, the Houston-based partnership said a capacity increase on Gray Oak was "supported by customer commitments."

"The Gray Oak pipeline is our largest organic project to-date and expands our footprint into the high-growth Permian Basin," COO Tom Liberti said during Friday's earnings call. "We are seeing strong customer demand for crude oil takeaway for the Gulf Coast." Liberti also said the project's cost had increased to $2.2 billion, up from $2 billion.

Gray Oak is expandable to about 1 million b/d. The pipeline would transport Permian crude from the West Texas counties of Crane, Reeves and Winkler, along with crude from the Eagle Ford, to PSXP's Sweeny Hub near Houston and a new terminal in South Texas near Corpus Christi.

During a Q&A with analysts, Liberti said that while Gray Oak could be expanded, "at this point in time, we might be able to get a little bit of volume with a little bit of capex [capital expenditures]. But to get any significant increase on that line, it would require a larger capex investment."

When PSXP first announced construction of the Gray Oak system in April, the partnership said initial takeaway capacity of the system would be 700,000 b/d, based on an initial open season. Capacity was bumped up to 800,000 b/d after PSXP secured 700,000 b/d in shipper commitments following a successful second open season.

Gray Oak is a joint venture between PSXP, which holds a 75% stake, and Andeavor, which holds the remaining 25%. Enbridge Inc. has an option to acquire up to one-third interest, which if exercised would shrink PSXP's stake to 42.25%.

In Corpus Christi, Gray Oak would connect to the South Texas Gateway Terminal, a deepwater terminal under development by Buckeye Partners LP, which is to be operator. Buckeye holds a 50% interest in the terminal, while PSXP and Andeavor each hold a one-quarter stake. Initial storage capacity for the terminal is 3.4 million bbl, which is expected to start up by the end of 2019, coinciding with the startup of the Gray Oak pipeline system.

Phillips 66 announced a $1.5 billion expansion of natural gas liquids (NGL) fractionation capacity at its Sweeny Hub in June, by building two 150,000 b/d fractionators. In response, PSXP said it would expand its NGL storage capacity at Clemens Caverns to 15 million bbl from 9 million bbl. The expansion is expected to be completed in late 2020.